The pound broke through the symbolic $1.70 barrier on currency markets today for the first time in almost five years after adding to gains made last week after Bank of England governor Mark Carney hinted at the prospect of higher UK interest rates later this year.

Carney's comments in a speech at London’s Mansion House drove a surge by sterling on Friday, and his deputy, Charlie Bean, added some fuel to the fire on Sunday, when he said he was optimistic about the economy and would welcome the bank's beginning to ‘normalise’ interest rates.

Bean said in an interview with the Sunday Times that the bank rate would go up to, perhaps, 2.5 per cent to 3 per cent rather than the 5 per cent long run average.

Rate fears: Minutes of the Bank o England's June meeting, due on Wednesday, could show at least one member of the monetary policy committee (MPC) had backed an immediate rise in rates.

Analysts said the tone of the comments had firmed expectations that the minutes of the Bank's June meeting, due on Wednesday, would show at least one member of the monetary policy committee (MPC) had backed an immediate rise in rates.

Jane Foley, currency strategist with Rabobank told Reuters: ‘All of these remarks do suggest the tide is turning at the Bank of England.

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‘Whether that means that a hike by the end of this year is on the cards, we are not sure. But these minutes may go some way to showing us.’

Before Carney's comments last Thursday, analysts had already been speculating that the minutes would show his MPC colleague Martin Weale had voted in favour of a hike in rates now.

Carney comments: The Bank of England governor's hints last week that UK interest rates could rise sooner than expected weighed on stocks but boosted the pound once again.

Sterling reached a high of 1,7010 against the dollar early on today, its best level since August 2009, before retreating below that level to trade flat at 1.6969 in late morning trade.

The pound has gained more than 10 per cent in the past year on expectations a rapidly improving UK economy would prompt the bank to raise interest rates.

But the rally had stalled in the past month after Carney warned markets in mid-May not to expect swift action.

Last Thursday’s comments were therefore seen as a bit of a U-turn by the Bank’s governor with some analysts speculating he was moving to ensure he was not left behind by the MPC consensus.

The BoE is expected to be the first major central bank to raise rates ahead of the US Federal reserve and the European Central Bank (ECB).

The Federal Reserve Open Market Committee meets this week, with a policy decision due on Wednesday, and it may also hint at when it will start to raise rates after the projected end to its monthly bond buying programme scheduled for September or October.

Earlier this month, the ECB became the first major central bank to introduce negative deposit rates - charging lenders to park funds overnight - and also announced plans for a stimulus programme as the bank attempts to aid a euro zone economy struggling with the threat of deflation.

A further slowdown in euro zone inflation in May was confirmed on Monday, as the cost of telecommunication and food kept prices low.

Consumer prices in 18 countries using the euro rose by 0.5 per cent on the year in May, keeping them in the 'danger zone' of below 1 per cent, the EU's statistics office Eurostat data said.

Prices fell by 0.1 per cent on the month in May, with the cost of services down by 0.2 per cent when compared with April.

The ECB recently lowered its forecast for euro zone inflation in June, predicting that it would reach 1.4 per cent in 2016 - far off its target of below but close to 2 per cent.

The pound was fractionally higher against the euro today, at 1.2540 slightly extending the peak reached on Friday which was its highest level since early October 2012.